Daqo New Energy Earnings Call Highlights Deep Strain

Daqo New Energy ((DQ)) has held its Q1 earnings call. Read on for the main highlights of the call.

Daqo New Energy’s latest earnings call painted a stark contrast between operational resilience and financial pain. Management emphasized a fortress balance sheet, zero debt and disciplined pricing. Yet a dramatic revenue collapse, deep losses and heavy cash burn underscored how brutal current polysilicon market conditions have become for shareholders.

Liquidity Strength and Debt-Free Balance Sheet

Daqo stressed that it ended Q1 2026 with about USD 2.0 billion in assets readily convertible to cash, including USD 559.4 million in cash and more than USD 1.1 billion in fixed‑term deposits. With no debt on the balance sheet, the company argued it has the flexibility to navigate a prolonged downturn and wait for better pricing.

Production Beat Despite Market Turmoil

Operationally, the company delivered 43,402 metric tons of polysilicon in Q1 2026, beating its guidance range of 35,000–40,000 metric tons. Output came from two facilities and reflects that Daqo is still running at meaningful scale even as it throttles utilization below full capacity.

Disciplined Pricing and Intentional Sales Pullback

Management highlighted a deliberate decision to avoid below‑cost sales in line with Chinese self‑regulation efforts, which pushed sales volume down to just 4,482 metric tons. This strategy helped lift the average selling price 2.3% sequentially to USD 5.96 per kilogram, but it also contributed to a sharp inventory build and weak reported revenue.

Cost Efficiency Gains in Local Currency

Despite headwinds from higher silicon metal prices and modestly higher production and cash costs in dollar terms, Daqo reported that its manufacturing cost per kilogram declined slightly in RMB terms. The company attributed this to ongoing efficiency improvements at its facilities, which partially offset input cost inflation.

Production Guidance Offers Operational Visibility

For Q2 2026, Daqo expects polysilicon production of around 35,000–40,000 metric tons and reaffirmed full‑year guidance of 140,000–170,000 metric tons. Management said it ran at roughly 57% of nameplate capacity in Q1 and plans to keep utilization around 50–55% in Q2, adjusting further based on market and policy developments.

Early Signs of Stabilization and Policy Support Hopes

The company noted that weekly polysilicon price declines appeared to slow heading into Q2, hinting at tentative stabilization. An April 17 symposium by multiple Chinese authorities was cited as a signal that price laws and capacity regulation may be enforced more strictly, potentially supporting a medium‑term price recovery for the industry.

Revenues Collapse as Volumes Dry Up

The impact of Daqo’s volume discipline and weak demand was stark in the top line, with Q1 2026 revenue plunging to USD 26.7 million. That represents an 88% sequential decline from USD 221.7 million in Q4 2025 and a 78.5% drop versus USD 124 million in Q1 2025, underscoring how harsh the current pricing environment is.

Heavy Inventory Impairment and Gross Loss

Cost of revenue in the quarter included a USD 98.4 million provision for inventory impairment, reflecting the fall in market prices below production costs. As a result, Daqo posted a gross loss of USD 139.4 million and a gross margin of negative 521%, compared with a modest gross profit in Q4 2025 and a smaller gross loss a year earlier.

Deep Net Loss and Swing to Negative EBITDA

Net loss attributable to shareholders widened to USD 88.4 million, or USD 1.31 per basic ADS, compared with a USD 7.3 million loss in the prior quarter. EBITDA turned sharply negative at USD 83 million, versus positive EBITDA of USD 52.5 million in Q4 2025, highlighting severe pressure on profitability.

Sales Volume Collapse and Inventory Build

The gap between production and shipments was enormous, with sales volume of 4,482 metric tons against output of 43,402 metric tons. This imbalance led to significant inventory accumulation, which not only ties up working capital but also increases the risk of further write‑downs if prices stay low.

Cash Decline and Elevated Cash Burn

Daqo’s cash, cash equivalents and restricted cash fell to USD 559.4 million from USD 980 million at the end of 2025, despite large term deposits and investments. Net cash used in operating activities ballooned to USD 147.5 million, while investing outflows of USD 275.8 million went largely into short‑term investments and fixed‑term deposits.

Industry Overcapacity and Intense Price Pressure

Management painted a picture of severe industry overcapacity, with monthly polysilicon supply around 93,000 metric tons and average utilization near 39%. Prices dropped from roughly RMB 48–55 per kilogram at the end of 2025 to RMB 35–37 by the end of Q1 2026, leaving many producers selling below cost and keeping heavy pressure on margins.

Operating Margin Deterioration

Reflecting these conditions, Daqo’s operating loss swelled to USD 150.8 million in Q1 2026, translating to a negative operating margin of 564%. That compares with a USD 20.9 million loss in Q4 2025 and a USD 114 million loss in Q1 2025, marking another step down in profitability.

Guidance and Market Outlook

Looking ahead, Daqo plans to hold production at 35,000–40,000 metric tons in Q2 while maintaining roughly 50–55% utilization and adjusting lower if price enforcement does not materialize. Management expects new government cost determinations and price guidance around mid‑year and sees a possible policy‑supported range above current spot prices, though they also warned that without enforcement, Q2 prices may hover in the RMB mid‑30s to around 40 per kilogram.

Daqo’s earnings call ultimately balanced confidence in its strong balance sheet and operational discipline against very weak short‑term financial results and a troubled industry backdrop. For investors, the story hinges less on execution and more on timing and strength of policy support and consolidation, which will determine whether today’s pain can translate into stronger pricing power in future cycles.